CFTC’s Massad: Agency Focused on ‘Fine Tuning’ Financial Rules

Tim Massad, Chairman of the CFTC, gave his first television interview since taking office to Bloomberg Television’s Peter Cook, discussing the outlook for the agency and financial regulations.

Chairman Massad said the CFTC is not contemplating “wholesale changes” to regulations, rather “we are in a phase where there will be fine-tuning…There are a number of areas where we’ll — where we’ll make some tweaks to make sure thing work well.”

He suggested the CFTC budget needs to be increased: “I don’t think we have the resources to do the job that the American public expects and deserves…In terms of our budget, I want to work with Congress to increase it however we can. Fees are one possibility.”

Massad Says CFTC Focused on Fine Tuning Financial Rules

PETER COOK: I am joined by Chairman Massad. Welcome. Congratulations on the new job.

CFTC’s TIM MASSAD: Thank you, Peter. It’s good to be here. It’s good to see you again.

COOK: I want to ask you first of all about how you’re going to approach this job perhaps differently than Gary Gensler. He was known for ruffling some feathers here on Washington, on Wall Street, even oversees among foreign regulators. Do you see part of your job as striking a different tone than Gary Gensler?

CFTC’s TIM MASSAD: It’s not really a question of striking a different tone. It’s more a question of it’s a different time and place. I think Gary did an amazing job, and really the agency did so much and we’re ahead of where all the other G20 nation are in terms of regulating this market, and that’s a credit to him as well as the staff of the agency. We have a terrific, hard-working staff. Now we’re in a different place, a different time.

There are slightly different challenges. Now our challenges are things like as we see how these new rules affect the marketplace, we’re going to need to fine-tune them in some respects. We’ve got a lot of work to do with respect to our international counterparts, our international regulators to make sure the global framework is harmonious. So it’s different challenges and I’ll act accordingly in light of those.

COOK: For anyone out there at a financial firm to think there might be a kinder, gentler CFTC under Tim Massad, what’s your message to them?

CFTC’s TIM MASSAD: Well I think you’ve got a very pragmatic and practical CFTC. We’ve got a great commission. We’ve got four commissioners, all of whom bring very valuable experience to the table and all of whom I think are very committed to trying to get these rules right. And I think we all recognize the importance of these markets to a wide variety of businesses. These are market that most Americans don’t touch and they don’t know anything about. They seem very esoteric, and yet the affect fundamentally the prices we all pay for food, for transportation, for really all the goods we buy. They affect so many businesses. And I think you’ve got a commission that’s very aware of that.

COOK: Have you looked so far — and a lot of the rules were put in place under Gensler. Now as you said, you’re looking to see how they’re implemented. Are they working effectively? Have you been able to look at any of the rules put in place by Dodd-Frank that you can tell automatically we need to visit this, we need to tweak this somehow?

CFTC’s TIM MASSAD: I would say it this way. I think first of all the agency did a great job getting all these rules because they — they faced significant deadlines by Congress. Now we are in a phase where there will be fine-tuning. It’s not wholesale changes, but we are talking about —

COOK: Can you give us an example?

CFTC’s TIM MASSAD: Sure. We’re probably — we have a rule on utilities special entities, kind of smaller companies where we need to make sure they still have full access to the market. We have a proposed rule out there. We’ll probably finalize that very soon. We have the margin rules. We’ll come up with a reproposed rule on margin for uncleared swaps where we’ll make a few changes to what was proposed before.

There are a number of areas where we’ll — where we’ll make some tweaks to make sure thing work well. And again with respect to end users, to make sure that the rules don’t impose undue burdens on commercial companies, not — we’re not talking here about so much the financial companies but the commercial companies that use these markets. We want to make sure these rules work so that they can still get the benefit of these markets.

COOK: There’s been a big focus on cross-border rules and some of your — the foreign regulators have said, listen, the CFTC may be going too far in certain areas. I want to ask you if you see already — your take on that, but more importantly, your — the agency has already said that it’s looking at the issue of whether banks are trying to skirt these rules in some way, this deguarantee issue, basically trying to change the terms of swap agreements so they don’t fall under CFTC jurisdiction. Are banks already cheating?

CFTC’s TIM MASSAD: Well it’s not so much — let me — let me pass on whether it’s cheating. Let’s — let’s talk about it this way. The financial industry is very good at morphing, at structuring things around regulation. What we’re doing is looking at this practice of deguaranteeing. And it — even if it’s well within the rules, it may still mean that activity abroad poses a risk to the US banking corporations which own these swap dealers. And that’s why as we do this investigation we are consulting with our counterparts at the Fed and the FDIC and the OCC, as well as the SEC, because I think it will raise — potentially raise issues for them. We want to make sure —

COOK: There may be a London loophole that needs to be closed?

CFTC’s TIM MASSAD: Well it’s not so much a London loophole. I think the way to think about it is this. We have global financial corporations that are active all over the world, but we’re regulating this market through nation states. No nation can regulate all the activity that occurs around the world. That’s why we need a harmonious global framework and that’s why we’re committed to building that. But we will also work with our counterparts in the banking regulatory agencies where we think that, look, there’s risk that maybe is beyond the reach of our authority but could affect the parent banking corporation. That may be something that they can address.

COOK: Enforcement front, something you inherited, the LIBOR situation. The settlements there the CFTC has done. What’s your sense about where the LIBOR investigation at the CFTC stands? Are we going to see more settlements, more action by your agency?

CFTC’s TIM MASSAD: Well we did one just a few weeks ago and we’re still looking at this. There was a lot of bad behavior in this area. So we’ll